Why Piramal Healthcare is like Buffett's Berkshire Hathaway

Sitting in the 10th floor of his corporate headquarters that resembles a mini-Louvre, with its art trove and long corridors, Ajay Gopikrishna Piramal is almost Zen-like in his approach to life and business.

One would assume, with $3.8 billion at his disposal after selling his formulations business to Abbott two years ago, the Piramal Group's chairman would be suffering from the quintessential problem of plenty: restless, edgy, dying to jump into various new ventures and ideas.

But, Piramal knows the virtues of patience. There is an air of serenity around him, except for his vermillion hand-painted floral tie. Cool, composed and collected, a day after his latest headline-grabbing deal -- the buyout of analytics firm Decision Resources Group -- Piramal talks karma.

...

But, he is aware investors are wary of his recent diversifications, calling his empire a patchwork of small businesses -- from pharma to glass manufacturing, NBFC to real estate and defence -- that lack both depth and scale.

Equally foxed are people with his investments in scarred sectors like telecom, in marquee brands like Vodafone India. Analysts have stopped tracking Piramal Healthcare; its stock price is lower than the cash or book value of the company. Clearly, there is a huge discount to the cash.

So, is Piramal Healthcare Limited (PHL) a lifesciences franchise or is it like a PE firm, investing for grand returns? Or better still a holding company for various different businesses?

...

"To some extent, we are like Berkshire Hathaway (of Warren Buffett). Berkshire looks at the long term and they too are in many businesses," Piramal agrees after much cajoling.

Piramal is pragmatic when he says he's equally clear the conglomerate approach may not be beneficial in the long run. "It's not that we are married to the idea of having everything together permanently." 

So, splitting Piramal Healthcare is an inevitable option. But, to do that, "you need critical mass and still most of our businesses are in the investment phase without having a significant top line or bottom line. So, I do think it would be too early to split them just yet," he says. It is exactly because of such funding requirements that the drug discovery business was brought back under the rubric of PHL.

...

But, the astute businessman is clear in his thinking. "In the future, though, if we have a good pipeline of products in our discovery and development programme, we could look at the drug discovery business independently or when our financial services reach a good size, we could look at it separately."

Even though he is not "overly concerned" about the investor confusion and panning of his blueprint, he feels his investors need to have patience for the long haul. "I won't say they are harsh, I believe they have not understood us. I cannot blame them."

But, with PHL soon changing its moniker to Piramal Enterprises, one would assume investors will get clarity on what's cooking.

...

According to the Irda report for 2010-11, the life insurance industry had reported a net profit of Rs 2,657 crore (Rs 26.57 billion) as against a net loss of Rs 989 crore (Rs 9.89 billion) in 2009-10. Besides LIC, eleven private companies reported profits in 2010-11.

For instance, while ICICI Prudential Life reported a net profit of Rs 1,384 crore (Rs 13.84 billion) for the year 2010-11 as against Rs 808 crore (Rs 8.08 billion) in the corresponding period of the previous year, another significant player, Max New York Life, which reported a Rs 190-crore (Rs 1.9-billion) net profit during 2010-11, has already made a net profit of Rs 572 crore (Rs 5.72 billion) in the first nine months of 2011-12.

Similarly, HDFC Life, which reported a loss of Rs 100 crore (Rs 1 billion) last year, reported a net profit of Rs 271 crore (Rs 2.71 billion) in 2011-12.

...

According to analysts, the move can also be related to the promoters. Having invested capital for nearly a decade, promoters are now demanding positive returns.

"In an effort to enhance productivity while rationalising on costs, the number of branch offices was right sized.

However, this right sizing was done in a manner to ensure that no geography was exited and more importantly ensuring that customers had uninterrupted service and access to financial solutions provided by the company," said an insurance official on the condition of anonymity.

...

During 2011-12, the life insurance industry's policy issuance was down eight per cent, whereas for the whole private players industry it was down 24 per cent.

As a result, the first-year premium collection of life insures, was down nine per cent to Rs 1,14,233 crore (Rs 1,142.33 billion) against Rs 1,25,826 crore (Rs 1,258.26 biilion) in the corresponding period of the previous year.

In the same period, the total collection by the private life insurance industry was down 17 per cent.